RF Capital Group Inc. (RCG) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and fellow shareholders. I would like to welcome you all to this annual and special meeting of the common shareholders of RF Capital Group Inc. My name is Don Wright. I am the Chair of the Board of Directors of RF Capital. And in accordance with RF Capital's bylaws, I will be chairing this meeting. In the event I am disconnected from the meeting as a result of technical malfunction, Krista Coburn, our General Counsel and Corporate Secretary, will step in and assume the role of Chair of the meeting. On behalf of the Board, I wish to express my sincere thanks to all who are joining us today as well as to those who have submitted their proxies in advance. As you know, 2020 was a year of significant change for RF Capital Group. I am pleased to report that we've delivered on several key priorities. First, we completed the acquisition of Richardson Wealth, which is the centerpiece of our transformation that began in 2019. We are also happy to report that our acquisition of Richardson Wealth and the exceptional work by our team of advisory partners has recently been recognized as the 2021 Mid-Market Deal of the Year by the Canadian Law Awards. Second, we engaged in ongoing dialogue with our advisers to inform the future strategic direction of our company. And third, we have strengthened the Board's skill sets and diversity with the addition of 5 new directors and know that shareholders will benefit significantly from their prospective judgment and broad-based business experience. Following the formal items on the agenda, there will be a presentation by our CEO, Kish Kapoor, providing an update regarding the company's bold and ambitious growth strategy, after which, we will be pleased to respond to your questions. With respect to the proxies received before the meeting, more than 91% of the shares voted by proxy would be voted in favor of each of the matters, sufficient to ensure that all motions before the meeting will pass. As the meeting is being held virtually via live webcast, we think it is necessary to set out a few rules for the orderly conduct of the meeting. First, questions in respect of a motion can be submitted by a registered common shareholder or duly appointed proxy holder using the instant messaging service on the Lumi platform. Second, questions will only be addressed during the question period at the end of the meeting, provided that questions regarding procedural matters or directly related to the motions before the meeting may be addressed during the meeting. If during the course of the meeting, we encounter any technical difficulties with the webcast, please remain logged on, and we will resume as soon as practical. We will now proceed with the formal portion of today's meeting. The meeting will now come to order. With the consent of the meeting, I will ask Krista Coburn, our General Counsel and Corporate Secretary, to act as Secretary of the meeting. With the consent of the meeting, I would also ask that Helen Kim and Megan Rocha of AST Trust Company (Canada), our transfer agent, act as scrutineers of this meeting to report on the number of common shareholders present in person and the number of common shareholders present by proxy, to tabulate the votes on any poll taken and to report to me as Chair of the committee. We have received a notice from our transfer agent indicating that the notice of the meeting, form of proxy and management information circular were properly mailed to the common shareholders of RF Capital. The scrutineer has also provided me with a report on attendance, which confirms the requisite quorum is present at today's meeting. Unless there is an objection, I will dispense with the reading of the notice of the meeting. I will also direct that a copy of the notice, form of proxy and circular and proof of their delivery, together with a copy of the scrutineer's report on attendance at the meeting, be annexed by the secretary to the minutes of this meeting. Notice of the meeting have been given in accordance with RF Capital's bylaws and quorum being present, I now declare that this meeting has been duly convened and constituted for the transaction of the business for which it has been called. To make the best use of our time today, I will move each item, and I have been advised by Tim Wilson and Rocco Colella, both shareholders in attendance today that they would be prepared to second each of the motions I so move. Accordingly, unless there are any objections, I will take such motions as seconded with no further actions needed. Only holders of common shares as of the close of business on April 19, 2021, or their proxies are entitled to vote today. Voting on the items of business to come before today's meeting is being conducted by electronic ballot, that is now available on the Lumi interface. You'll be able to choose to vote on each resolution immediately or wait until the conclusion of discussion on each resolution prior to casting your vote. Voting will close approximately 1 minute following the conclusion of the formal discussion and Q&A session. You are encouraged to submit any comments or questions and complete your ballot in advance of the Q&A session. Once voting closes, the scrutineer will tabulate the results of the vote for each matter. The first item of business is the presentation of RF Capital's audited consolidated financial statements, the auditor's reports thereon and the related management discussion and analysis. These documents were mailed to registered common shareholders of RF Capital and are also now available for viewing on the Lumi interface. I would ask the secretary to note these as having been presented as such to the meeting. We'll now proceed with the matters requiring shareholder action today. Please be reminded that your votes can now be submitted by electronic ballot on the Lumi interface. The first item requiring shareholder action is the election of directors. The term of office of the directors will be from today until the next annual meeting of common shareholders or until such time as their successors have been duly elected or appointed. As set out in our management information circular, 11 directors are to be elected today. The following individuals have been nominated: Nathalie Bernier; Dave Brown; Marc Dalpé; Vincent Duhamel; David Ferguson; Kish Kapoor; Julie Lassonde; David Leith; Jane Mowat; Sandy Riley; and myself. Information regarding each of the director nominees is set out in the circular. Specifically, I would like to note that we have 5 new directors standing for election at this meeting. David Leith, who joined the Board in December of 2020 and Nathalie Bernier, who joined the Board in January of this year. And 3 nominees that we look forward to welcoming to the Board: Vincent Duhamel, Jane Mowat and Sandy Riley. You will see from their biographies in the management information circular that if elected, each of these directors will bring valuable skills, expertise and specialized knowledge to our Board. I now move to elect these 11 persons as directors of RF Capital to hold office until the next annual meeting of the common shareholders or until their successors are elected or appointed. As advised earlier, I will take such motions as seconded. Questions on each matter, if any, will be addressed once all items of business have been moved. The next item of business is the appointment of auditors and the authorization of the Board of Directors to fix their remuneration. As set out in our management information circular, I will now move that KPMG LLP be appointed auditors of RF Capital to hold office until the next annual meeting of common shareholders and that the Board of Directors, on the recommendation of the Audit Committee, be authorized to fix the remuneration. I take such motion as seconded. We'll now move on to the resolution to authorize and approve an amendment to the articles of the company to consolidate the issued and outstanding common shares of the capital of the company on the basis of 1 new common share for up to 10 existing common shares. The resolution, if approved, provides that the common share consolidation will ultimately become effective at a date in the future to be determined by the Board when the Board considers it to be in the best interest of the company to implement the consolidation. The resolution also authorizes the Board to elect not to proceed with and to abandon a common share consolidation at any time if the Board determines that it is not in the best interest of the company. The full text of the resolution is set out at Schedule A to the management information circular. To be passed, the share consolidation resolution must be approved by an affirmative vote of not less than 2/3 of the votes cast by common shareholders present in person or by proxy and entitled to vote. I take such motion as seconded. We will now move on to the approval of the amendments to the company's option plan to fix the number of common shares for which options may be granted at 1,500,000 and to remove legacy language included in the option plan that relates to options associated with the company's former trust option plan. The full text of the resolution is set out as Schedule B to the management information circular. To be passed, this resolution must be approved by a simple majority of votes cast by common shareholders present in person or by proxy and entitled to vote. I take such motion as second. The next item of business is the resolution to approve, ratify and confirm the adoption of By-Law No. 4 of the company, which was approved by the Board of Directors on November 24, 2020. Specifically, the resolution, if approved, amends the company's bylaw to provide that shares of the company may be evidenced by certificates or uncertificated book entry shares. The full text of the resolution is set out as Schedule D to the management information circular. To be passed, the resolution must be approved by a simple majority of votes cast by common shareholders present in person or by proxy and entitled to vote. I take such motion as seconded. All motions having been tabled, the motions are now open for formal discussion and general shareholder questions will now be answered. Mr. Colella, please read any comments or questions to be addressed.

Mr. Chair, there are no comments or questions to be addressed at this time with respect to the formal portion of the meeting.

Thank you, Mr. Colella. Discussion of the items of business and the Q&A are now closed. You will now have 1 minute to complete your ballot. As a reminder, you can vote for or withhold in respect of each director nominee and the appointment of KPMG LLP and for or against the common share consolidation resolution, the option plan amendment resolution and the bylaw amendment resolution. In 1 minute's time, your ballots will automatically be submitted. [Voting]

The scrutineer has now reported to me regarding the matters voted on with respect to the resolution regarding election of each of the individuals nominated as directors, I declare that each of the 11 nominees is elected as a director of RF Capital. With respect to the resolution appointing KPMG LLP as auditors of RF Capital, I declare this resolution carried. With respect to the common share consolidation resolution, I declare this resolution carried. With respect to the option plan amendment resolution, I declare this resolution carried. With respect to the bylaw amendment resolution, I declare the resolution carried. I would ask that the scrutineer compile the report regarding the results of voting on all business matters and final results will be published on SEDAR and by press release. I am unaware of any further business to be brought before the meeting and subject to any such business being properly brought, I move to terminate the formal portion of this meeting and take such motion as seconded. I declare the motion carried and the formal portion of the meeting terminated. We will now hear from our Chief Executive Officer, Kish Kapoor, regarding our exciting future plans.

Thanks, Don. Good morning. On behalf of our new streamlined management team: Mike Ankers; Sarah Widmeyer; Jamie Price; Tim Wilson; Scott Stennett; Lynne Brejak; and Krista Coburn, welcome to our first ever meeting as a wealth management company. A company with 158 advisory teams, managing a record $33 billion of assets, on behalf of 31,000 households across Canada; a company that aspires to make Patrimoine Richardson or Richardson Wealth, the brand of choice for Canada's top advisers and their high-net-worth clients in the francophone and anglophone markets, respectively. It has been an eventful and multiyear journey getting here, but judging by our record results, it's been worth it. Even more exciting is what we plan for the future. Our advisers have asked us to dream big, set ambitious goals and build actionable plans. And that's what we have done. Today, I will share those ambitious plans with you. But before I do, I want to step back to reflect on the humble beginnings of the business we know today. 17 years ago, Hartley Richardson and Sandy Riley had a moment of inspiration. Sitting on a cottage dock in the Lake of the Woods, they conceived an idea to build a boutique wealth management firm. All they had was that idea, no advisers, no clients, no revenue. Just a firm belief that Canadians wanted an alternative to the banks for their wealth management needs. It was on that day, with an idea on a napkin, that our company was born. Hartley and Sandy were not alone. At the same time, Kevin Sullivan and Andrew Marsh were dreaming the same dream at GMP Private Client, as were the people at Macquarie and its predecessor firms. Each dream inspired entrepreneurial advisers across the country to lead the banks to build something much better for themselves and their clients, to build something with the strong adviser-centric and entrepreneurial culture and a high-touch boutique private client mindset, something the advisers lost when the banks bought most of the country's independent firms, including Richardson Greenshields. Years later, after many ups and downs, the firm that resulted from those dreams is now a highly successful award-winning boutique firm that is poised to exceed our founders' expectations. You can see it in our strong adviser-centric and entrepreneurial culture, in our financial results and in our ambitions. Our culture is, I believe, unmatched. Recently, a global authority on workplace culture, named us as the Best Workplace for Women, a Best Workplace in Canada, and a Great Place to Work for 3 consecutive years. Just last week, Richardson Wealth scored better than all the Canadian banks and most of our other competitors of the 2021 Investment Executive Brokerage Report Card, as measured by Net Promoter Score and IE rating. Equally encouraging, Richardson Wealth has been delivering strong, and on many metrics, record financial results. AUA is at an all-time high of $33 billion. This is up nearly $10 billion from the pandemic-induced lows of last year. Recurring fee-based revenue of $58 million was a record in the first quarter, equivalent to $228 million annualized. Transaction revenues were up significantly in Q1 based on a 227% increase in new issue participation over the same period in 2020. Average AUA is now at a record $205 million for advisory team. Adjusted EBITDA at Richardson Wealth, the foundation of our growth strategy, was $14.1 million in Q1. This was the highest level in 7 years and 23% above the same period last year. This is particularly impressive, given a $1 million per month drop in interest revenue we experienced as a direct result of the historically low interest rate environment. And we have more high-net-worth clients than ever before, including many more ultra affluent clients in our Richardson Wealth Private Family Office. What really excites me is that our advisers, the driving force of our business, are setting personal best performances month after month, not a bad result from an idea on a napkin 17 years ago. So now let's talk about our future plans. As I said, our advisers asked us to dream big. And so we have, inspired by their entrepreneurial spirit, we spent the last 4 months working with them and the Boston Consulting Group to map out a 5-year plan to capture the imagination of shareholders, advisers and clients everywhere. That plan rests on 3 strategically sequenced pillars: double down on our investment in our exceptional advisory teams to drive organic growth; supercharge recruiting; and then using a stronger multiple created by that organic growth, acquire or partner with like-minded firms for scale or enhanced capabilities. This plan is aimed at tripling our assets to $100 billion over the next 5 years. Such significant growth in AUA would put the business on track to increase run rate revenues from approximately $300 million today to $1 billion; grow adjusted EBITDA from $50 million to between $200 million and $300 million, with the majority of the increase coming from steady-state growth, organic initiatives and recruitment and the remainder from M&A and strategic partnerships; and elevate adjusted EBITDA margins from 17% to as high as 30%. These are bold and audacious goals, and they're achievable. To build on the momentum we are already seeing, AUA is up nearly $5 billion in the past 6 months, supported by $1.4 billion in net new and recruited assets. Our recruiting pipeline is the strongest it's ever been at $10 billion, and our people are on site. 94% of our advisers and employees indicated in a recent internal survey that they're excited to be part of our plans. It truly is our moment, and make no mistake, we're playing to win. Let me tell you how. I'll begin by walking you through the 3 pillars I laid out earlier, starting with the first, doubling down on the investment in our advisers. We are and will continue to make it clear to everyone in our organization that we will treat our advisers as our clients and that we will do everything possible to make it easier for them to succeed here more than anywhere else. We will aspire to make Patrimoine Richardson or Richardson Wealth their final home. We will develop and finance succession plans that will retain and attract the best advisers to come here and stay for their whole careers. Above all, we will nurture and zealously protect our high-performing, adviser-centric and entrepreneurial culture. And we will build a platform to support advisers as they provide a high-touch boutique experience to the high-net-worth clients for generations to come. I'll highlight some of the investments we have already made and others we intend to make in the next several months. We will invest in an advanced managed portfolio platform, enabling advisers and portfolio managers to operate, strengthen and build their practices. We will launch an adviser action desk to serve as a one-stop destination where advisers can access the support they need to deliver exceptional client service. We will set up an adviser concierge platform to deliver a personalized experience for our advisers. We will engage experts to develop a leading practice management program to help advisers build their practices on their own or by leveraging the benefits of a centralized team and investment process. We will add high-caliber talent to our existing tax and estate planning team. We will search for and partner with the best providers of tools and technology to enhance the client and adviser digital experience. And we will launch a comprehensive plan to raise external awareness of our brand, including everything from client events to podcast to social media and more. These investments will complement other initiatives that are already receiving favorable reviews from our advisers, including our new financial planning software, My NextGen, our enhanced MyRichardsonWealth online client portal, our revamped client statements and our newly implemented e-signatures. We also expect our recently announced plan to bring our insurance operations in-house to drive organic growth. This change will allow us to retain more of the economics, realize greater insurance penetration rates and meaningfully increase insurance-related revenues. We will also continue to prepare for an exciting future of work by opening offices that meet the highest standards in environmental sustainability, efficiency and design, like those we recently opened in Vancouver, Edmonton, Charlottetown, and the one we will soon be opening at our marquee waterfront location in Toronto. These are some of the key organic initiatives on the go. It's important to highlight that there are many industry trends that support our prospects for organic growth. The wealth management industry is expected to grow from $4.4 trillion to $7.7 trillion by 2028. The increasing complexity and sophistication of wealth supports the long-term value proposition for face-to-face advice. There are 800,000 households in Canada with over $1 million in investable assets, our sweet spot. And there's space in the market for an independent player with a strong financial sponsor. Our current market share is less than 1%, so there's lots of room to grow. In a nutshell, betting on our advisers is not only a smart thing to do for them and for us, it would also attract more entrepreneurial advisers to us from the banks, which are becoming increasingly less adviser-centric. As you can tell, we're moving forward with purpose, investing in our capabilities, posting strong results and inspiring confidence with every step along the way. So that is pillar one of our growth strategy, doubling down on advisers. Now I'd like to take the turn -- I'd like to turn to the second pillar, recruiting. With a new name and a new beginning, we have adopted what we call a supercharged recruitment mindset. Our goal is to add 45 to 60 advisers over the next 3 to 5 years. To do that, we will continue strengthening an already talented corporate development team by adding more leaders like Dean Manjuris; implementing a more rigorous recruiting process; developing a targeted recruiting strategy, including enhancing our digital and marketing campaigns; enhancing the financial and nonfinancial elements of the adviser value proposition; leveraging our Board, advisers, employees and partners, many of whom are shareholders in promoting our brand with their peers across the country, including through development of new podcasts, marketing videos,and recruiting meetings; and inviting potential recruits and their clients to events featuring our leaders, board members, Hartley Richardson and Sandy Riley. These efforts are already bearing fruit as evidenced by our strongest ever recruiting pipeline, which as I noted earlier, currently stands at $10 billion. These are early days, but we have every reason to be bullish. Turning to the third pillar of our strategy. A big part of our growth story involves acquiring or partnering with like-minded firms to add scale or enhance capabilities. Potential targets include midsized wealth managers who are aligned with our focus on financial and wealth planning; or asset managers that offer distinctive capabilities that can enhance the adviser value proposition; or strategic partnerships that augment our product offerings and revenues in the areas such as day-to-day banking, digital lead generation, business valuation, business succession planning and capital markets. We have already received considerable inbound interest from multiple parties looking to join or partner with us. They see what we see, meaningful value creation opportunities. Already, strategic partnerships with Cormark and Bloom Burton have exceeded our expectations. You should know we will assess all these opportunities on the context of strategic priorities and funding requirements. When we step back and thought about the pillars of our strategy holistically, an important consideration was sequencing. We carefully evaluated sequencing based on opportunity size, adviser and client impact, funding requirements, execution complexity and interdependencies. Based on that, we concluded that our near-term focus will be on organic initiatives and supercharging recruitment of Canada's top advisers. Once those growth efforts take hold and our valuation multiple and share price better reflects the value of the business, we will embark on a deliberate M&A agenda. In the meantime, we will look at M&A opportunistically and lay the groundwork for future acquisitions. So those are the 3 pillars of our plan. What I'll outline today is just a sample of the many initiatives we currently have underway. There are clearly more, but we don't want to give too much of our secret sauce away. Now it's all about execution. To date, we've delivered on everything we set out to do, and we have the right board, the right team and the right level of drive to stay that course. To help ensure execution success, over the past 6 months, we have strengthened our majority independent and highly accomplished Board of Directors with the addition of 5 new independent directors: Nathalie Bernier, David Leith, Jane Mowat, Sandy Riley and Vincent Duhamel. We've also added bench strength and transformational expertise to our leadership team: Tim Wilson, Julie Burnham and Dean Manjuris; engaged the Boston Consulting Group with a deep expertise in wealth management and organizational transformation to ensure rigor and pace; tapped into the countless powerful and internal -- and external insights to inform our strategy. These consultations include meaningful internal engagement with our leadership team and soliciting feedback through town hall meetings and countless one-on-one meetings and external engagement with industry experts in Canada and internationally. And we've created a growth and enablement office to further increase the probability of success. Embedded in this office will be representatives of the Boston Consulting Group in addition to our own business leaders. Later this summer, we will be adding a person to lead our digital transformation, another to drive our corporate development initiatives and one to champion our practice management program. The final point that I want to touch on is the name on our door. Patrimoine Richardson or Richardson Wealth names both benefit from the rich history of the powerful Richardson brand. James Richardson & Sons, Limited has been building, investing in and acquiring successful businesses since 1857, even before Canada became a country. It is one of the largest private companies in Canada and has a diverse portfolio of businesses. Many of them are dominant players in their market segments. It is a proven history of success that attracted many of our advisers to join the firm to be owners alongside the Richardson Financial Group, and it is the Richardson history of building dominant and enduring brands that inspired us to have their name on the door. It is a name that we believe reflects a renaissance in our industry, the return of an era when the values and principles for farms founders really matter to those who entrusted their wealth to that firm. In summary, we are a firm that brings together a rich entrepreneurial history and culture, an ambitious plan for future growth and a clear road map for delivering on our promises. We are on the right track. We're attracting new partnerships, new directors, and new interest in our firm across the country and setting new performance records along the way. I'd like to end with a quote from one of my favorite serial entrepreneurs. It goes like this, "If your dreams don't scare you, they are too small." Our plan is bold, real and achievable. I look forward to updating you quarterly on our progress as we make it happen. I would like to thank you for your patience and support throughout this transformation journey to date and in the all-important next phase of creating long-term value for you. With that, Don and I will be happy to take any questions.

Thanks, Kish. We have 2 questions from shareholders. The first question, can you please provide details about the cost of the termination of certain members of senior management? Will these charges be taken this year? And are there any further charges in the foreseeable future? And maybe we'll pass that on to our CFO, Tim Wilson, to answer.

Thank you, Rocco, and thanks for your questions. Termination payments or retirement allowances related to individual people are, obviously, confidential for reasons I don't need to explain. So I'm not in a position right now to share those specific numbers. What I can assure you, though, is that those amounts have been fully provided for in our 2020 or our Q1 2021 financial statement. On the second part of the question about further amount, we have already provided for all of the known termination or retirement allowances or cost of organizational change.

Perfect. Thanks, Tim. Second question, perhaps for our CEO, Kish Kapoor. What portion of the AUA growth was attributable to the market rally? And what portion was due to recruitment?

Like I noted in my remarks that in the last 6 months, our assets have grown by $4.8 billion, and of that, $1.4 billion with net new assets.

Perfect. Thanks, Kish. There are no further questions at this point, so I'd like to turn the call back over to our Chair, Don Wright.

Thank you for your participation today, and I look forward to the day when we can meet in person again. Until then, please stay safe and stay well. Thank you.